Crash Course

Japanese car companies, which overtook US ones in the early 21st century, leading to the bankruptcy of General Motors and Chrysler last year, used a method of industrial innovation called kaizen, usually translated as “continuous improvement”. From a humble start, the Japanese companies had got better and better at making cars that were economical and reliable.

Meanwhile, Detroit perfected the technique of occasional improvement. As the Big Three – GM, Ford and Chrysler – slid deeper into trouble over decades of complacency, union obstructionism and mismanagement, they would occasionally stage a temporary recovery, with some new car or initiative prompting books and magazine articles about a Detroit revival.

This all proved to be illusory, with Detroit’s detour from making cars (ground that it had in effect ceded to foreign rivals by the mid-1990s) to producing “light truck” sports utility vehicles as the biggest deception of the lot. These were just upward blips on a long, steady descent from technological dominance to global laughing stock.

This is a familiar story adroitly retold by Paul Ingrassia, a veteran Wall Street Journal reporter who has written about Detroit over the years but maintains his sympathy for the human beings whose lives were crushed by this vast systemic failure.

In his effort to isolate what went wrong, Ingrassia goes back to the early 20th century, when Detroit was a “Mecca for automotive entrepreneurs” such as Henry Ford. Things had clearly gone downhill by the 1970s, when Detroit’s quality standards suffered: cars such as the Chevrolet Corvair and Ford Pinto had reportedly broken down and exploded.

There were, however, warning signs before that, when Detroit’s early focus on technology began, by the 1950s, to give way to an obsession with marketing and design. Ingrassia makes an entertaining journey into the history of tail fins. In 1948, these were borrowed from a Lockheed fighter by Harley Earl, GM’s chief designer, leading to a stylistic arms race.

One could trace it back further. Ingrassia’s account led me to wonder if GM was an aberration from the start. It sounds like heresy to even suggest it: business schools still study how Alfred Sloan turned Billy Durant’s rag-tag collection of brands into the epitome of the professionally managed US corporation.

Sloan was, as Ingrassia says, “low-key, methodical and prudent” and shaped GM into a portfolio of car brands, including Oldsmobile, Cadillac and Buick, intended to serve “every purse and purpose” in the US postwar market. He also pioneered techniques of marketing and design – the latter under Earl – that lured customers away from the boring, technology-oriented Ford, with its black-only Model Ts. GM overtook Ford and became the car industry’s dominant institution.

Yet Sloan’s vision of turning cars into dream machines, embodiments of their owners’ aspirations, left a gap that the Japanese, and later Korean, automobile companies later exploited. Unfortunately, Detroit came to believe that sizzle sold, while technology and reliability were of secondary importance.

Two other factors made Detroit vulnerable. One was its provincialism. Michigan became a one-industry state, dominated by the Big Three and hundreds of auto parts suppliers. It became unthinkable that auto companies could be run by anyone but Midwestern “car guys”.

A second vulnerability was the grip of the United Auto Workers (UAW) union, led by Walter Reuther, who exploited the complacency of the Big Three in the 1950s and 1960s, when money was flowing, to hammer out labour deals that later produced vast pension and healthcare liabilities.

Such forces not only made Detroit underestimate the Japanese invasion but also prevented it from responding effectively when it woke up. The Big Three maintained the comforting mantra that the plain, reliable cars being built by Nissan and Toyota – the Model Ts of their day – were alien to American tastes.

Ingrassia describes the moment in 1979 when Detroit should have ceased kidding itself: when Honda built its first US plant in Ohio and showed that American workers could make high-quality cars. It was not a matter of nationality, it turned out, but of good management.

The SUV boom of the 1990s brought a stay of execution, allowing the Big Three to prosper by switching from a losing struggle to produce decent cars and instead make bulky, highly profitable, light trucks. Eventually this avenue would be closed off by surging oil prices.

The tragic figure in this account is Rick Wagoner, an amiable, intelligent executive who was appointed chief executive of GM in 2000 and eventually led it to near-bankruptcy. Wagoner baulked at confronting GM’s structural problems head-on, and instead tried to make the best of them.

Such complacency in the face of trouble finally backfired at last year’s disastrous hearings in Washington at which the Big Three’s chief executives – and the head of the UAW – arrived on private jets to plead for a bailout of $25bn and were unable to answer even basic questions.

Despite this, GM’s board continued to back Wagoner until he was fired by Barack Obama as the price of a government bailout. “GM executives had come to believe that solving their problems was impossible and living with them was inevitable,” Ingrassia writes.

The question now is whether outsiders, helped by debt-shedding bankruptcy (resisted by Detroit until the end) can do better. Fritz Henderson, Wagoner’s successor, has been pushed out by Ed Whitacre, a former chief executive of AT&T and now GM’s chairman. Ford is being run by Alan Mulally, a former Boeing executive, and Sergio Marchionne, the head of Fiat, has taken over Chrysler. The line-up in Detroit, redoubt of the Midwestern “car guys”, is now one telecoms guy, one aerospace guy and one Italian.

A changing of the guard may not be enough. Ingrassia shows convincingly how Detroit’s problems built up, even during decades when it seemed to be doing well. It allowed Asian and European companies to shove it aside in its own heartland, and now the Chinese are coming.

Detroit was not always a basket case. It was the Silicon Valley of the early 20th century, a crucible of US product innovation and flair. All good things, however, come to an end.